Ministry of Finance Surprised Indonesia’s Economy Grows Above Market Expectations

Jakarta: Head of the Ministry of Finance's Fiscal Policy Agency (Kemenkeu) Febrio Kacaribu said the realization of economic growth in the second quarter of 2023 was above market analyst estimates. Meanwhile, Indonesia's economy grew rapidly in the second quarter of 2023 by 5.17 percent (year on year/yoy).

"National economic growth continues the trend of above five percent for seven consecutive quarters, higher than market expectations even with a high growth base in the same period the previous year. This shows the resilience of national economic activity amidst global warming," said Febrio, quoted from the press release, Tuesday, August 8, 2023.

This national achievement was higher than the majority of countries and regions, including Vietnam, the European Union, the United States and South Korea which each grew by 4.1 percent; 0.6 percent; 2.6 percent; and 0.9 percent (yoy) in the same period.

From the expenditure side, the strong national economic growth was supported by public consumption which grew by 5.23 percent (yoy). People's purchasing power continues to be maintained with the inflation rate that continues to decline. Activities related to the implementation of the General Election have also started to look stronger.

"This reflects the consumption growth of Non-Profit Institutions Serving Households (LNPRT) of 8.62 percent (yoy)."

APBN peak growth performance

Febrio revealed that the role of the State Revenue and Expenditure Budget (APBN) has proven to be quite significant in sustaining growth performance in the second quarter of 2023. Government consumption, which includes personnel spending and goods spending, grew very strongly by 10.62 percent, much higher than the growth in the first quarter of 2023 of 3.45 percent.

Gross Domestic Fixed Capital (PMTB) or investment in the second quarter of 2023 grew 4.63 percent (yoy). Apart from that, investment in non-building, mechanical machinery and heavy equipment sales has also been observed to be expansive.

Exports began to experience a contraction of 2.75 percent, while imports also contracted 3.08 percent, in the midst of world trade. However, exports of national superior products are still growing positively.

In terms of volume, export growth for coal, processed palm oil, and steel grew 5.1 percent each; 56.4 percent; and 18.0 percent (yoy) in the first half of this year.

The manufacturing sector grew by 4.88 percent (yoy) in the second quarter of 2023 and the trade sector grew 5.25 percent, in line with the expansion of the manufacturing sector for 23 consecutive months.

As the main contributor to the manufacturing industry, the food and beverage processing industry grew 4.62 percent in the second quarter, driven by increased production of refined palm oil and domestic consumption. Downstream activities continued to drive the growth rate of the base metal processing industry which grew 11.49 percent (yoy) in the second quarter.

"National investment growth continues to show improvement in line with structural reforms that continue to be rolled out to create an increasingly attractive investment climate. Positive investment growth was also driven by growth in building capital goods, equipment and machinery, which means that production activity continues to be strong," he continued.

The risk of hacking the world economy
 

According to Febrio, the resilience of the expansionary trend of the national economy which is maintained until the second quarter of 2023 is an important capital for the trend of future economic growth.

The quality of economic growth is also maintained as shown by the decrease in the response rate to 5.45 percent in February 2023 and the proportion of poor people in March 2023 of 9.36 percent.

Nonetheless, the government will continue to monitor and anticipate the risks of the current world economic hazard which will impact Indonesia's international trade performance.

"The government will continue to monitor and anticipate the risks of the current world economic hazard, especially the impact on national exports and imports. The national push to stop down-streaming will continue to be made to boost export performance."

"The government will also continue to make maximum use of various international economic cooperation forums to expand the export market for national products," he added.

With this commitment to a growth rate and structural stability, the government is optimistic that the national economic growth rate in 2023 is estimated to be around 5.1 percent.